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Ponzi Scheme’s Accounting Firm Liable for $1.8M

Posted on August 7, 2014

DeWitt & Shrader, an Indianapolis, IN accounting firm, has been found liable for $1.8M for serving as the accountant for a Ponzi scheme. The case was brought by the Indiana Secretary of State in their efforts to recover some of the $9M stolen from investors in the Ponzi scheme.

The Ponzi scheme was run by now-jailed Keenan Hauke. Keenan’s firm – Samex Capital Partners (Samex) was discovered to be an illegal investment company and convicted of securities fraud in 2011. In an effort to return money to investors, assets have been liquidated, profits clawed back and related parties to the firm have been sued.

DeWitt & Shrader acted as the accounting firm to Samex and issued investors their account statements and tax documentation. The firm’s conviction came based on the premise that their independence gave the scheme credibility. Neglecting their duty to accurately portray the investment situation was their mistake and their responsibility. Their lack of observation, inspection and professional curiosity led to their indictment.

The Securities Commissioner was quoted as saying that a firm has a responsibility to take action if they suspect securities fraud. She went on to say that DeWitt & Shrader turned a blind eye and did nothing.

There are important risk management considerations as a result of this case.

It is important for firms to know their clients. Simply doing work blindly may result in poor client retention ratios at best – and a lawsuit at worst.

Firms should investigate and follow up on suspicious behavior. If fraud is going on in a client’s business, the accountant should disengage to avoid being part of the activity.

Firms should keep an eye out for fraud. The accounting profession is respected and relied on by many third parties that the firm may not see. There is an ethical duty to present a client in an accurate manner through all work products.